Two key changes to the rules governing the grant of enterprise management incentives options (“EMI options”) were announced in this year’s Budget.
The three year individual limit on the grant of EMI options was increased from £100,000 to £120,000 from 6 April 2008, but the other change was that only companies with fewer than 250 full-time equivalent employees would be able to grant EMI options. A summary of the changes was provided in our previous article “Changes to the enterprise management incentives options rules” which is available here.
The 250 employee limit takes effect from Royal Assent and as Royal Assent could come at any time after 18 July 2008, companies who have more than 250 employees and who wish to grant EMI options should act now.
The Finance Bill completed its main House of Commons proceedings on 19 June 2008. The main House of Lords formalities have been scheduled for 18 July 2008 and it is expected that Royal Assent will follow a couple of days afterwards.
Companies who wish to grant EMI options before the new restrictions come into effect should therefore act now so that the EMI options can be granted before Royal Assent is granted, particularly if they want to obtain Revenue approval for share valuations.
Limit on the number of employees
Although most companies will not be at the borderline, for the purposes of determining whether a company has 250 or more full-time equivalent employees, a just and reasonable fraction for each part-time employee must be added to the number of full-time employees.
The difficulty arises in determining what constitutes a full-time employee and therefore the appropriate fraction to be used for part-time employees. For example, should a full-time employee be any employee who works at least 35 hours per week, or should the benchmark be determined on a company by company basis (for example, if a company has a 37 hour week)?
HM Revenue & Customs have indicated that they will publish guidance regarding the meaning of “full-time equivalent employees”, although there is no indication of when this will happen. It is anticipated that the guidance will follow the guidance published on the Enterprise Investment Scheme, which states that a full-time employee is someone whose standard working week is at least 35 hours. For example, someone working 21 hours a week would therefore be counted as 60% of a full-time employee, whatever the company’s own working week.
The guidance also provides that employees on maternity or paternity leave at the relevant time would not be counted.
Companies who have approximately 250 employees will therefore need to consider the test carefully and may be in a position to grant EMI options only at certain times.